Sensex crashes 1,100 points, investors lose ₹10 lakh crore— Why did the stock market fall? Explained

Stock market today: It was a bloodbath on Dalal Street on Wednesday, as the Indian stock market suffered sharp losses on March 4 amid investor dumping of risk assets amid the ongoing US-Iran war, which shows no signs of easing.

The conflict in West Asia has pushed crude oil prices significantly higher, stoking fresh inflation concerns and dealing a strong blow to expectations of near-term rate cuts by the US Federal Reserve and the Reserve Bank of India.

Sensex crashed 1,123 points, or 1.40%, to end at 79,116.19, while the Nifty 50 plunged 385 points, or 1.55%, to close at 24,480.50. The BSE 150 MidCap Index crashed 2.26%, while the BSE 250 SmallCap Index suffered a loss of 2.24%.

India VIX jumped over 23% to hover above the 21 mark, indicating heightened nervousness in the market.

Investors lost ₹10 lakh crore as the overall market capitalisation of BSE-listed firms dropped to ₹447 lakh crore on Wednesday from ₹457 lakh crore in the previous session.

The Sensex has crashed by 3,160 points, or 3.8%, over just 4 consecutive sessions. The Nifty 50 has declined 1,016 points, or 4%, in three consecutive sessions.

Why did the stock market fall? Key factors explained

Let's take a look at five key factors behind the market selloff:

1. US-Iran war: No signs of easing

The tensions between Iran and the US-Israel have been escalating since the killing of Iranian Supreme Leader Ayatollah Ali Khamenei, and the exchange of a barrage of missiles continues in West Asia. Israel on Tuesday claimed it launched fresh attacks in Tehran and Beirut. US President Donald Trump on Monday said the war could end in the next four to five weeks, but that he was prepared “to go far longer than that.”

"With the war escalating and crude oil rising, markets are going into a period of heightened uncertainty. Nobody knows how long this conflict will go on and what will be the extent of the havoc it could wreak," VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited, noted.

2. Rupee plunges to record low

As per Reuters, the Indian rupee slumped 68 paise to close at 92.15 against the US dollar on Wednesday, as the US dollar index jumped to a multi-month high amid rising inflation risks from the US-Iran war.

A weaker rupee can accelerate foreign capital outflows from the Indian stock market, as it signals pressure on corporate profitability from higher input costs.

According to Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities, technically, the rupee may remain volatile within the 91.00–92.00 range in the near term, with crude price action and geopolitical developments being the key drivers.

3. Crude oil at a multi-month high

Brent Crude is trading above $82 per barrel, while WTI Crude has surged above $75 per barrel, as escalating US-Iran tensions have disrupted shipments.

A sharp jump in crude prices can widen India's current account deficit, weaken the Indian rupee, raise inflation, and accelerate foreign capital outflows.

According to economists, for India, which imports more than 90% of its crude oil, the impact of rising crude prices can be significant. Every $1 increase in the price of a barrel of crude oil raises the country's import bill by around ₹16,000 crore.

"For India, the real concern is the potential inflation and its consequences on economic growth. From the market perspective, the real issues are a potentially widening trade deficit, a depreciating currency, higher inflation, and perhaps lower growth. If this fear materialises, corporate earnings will be impacted. This is the fear in the market. This fear will materialise only if the war lingers for long. If it ends in, say, 3 to 4 weeks, things will be back to normal," said Vijayakumar.

4. FII selloff

Foreign institutional investors (FIIs) have resumed selling Indian equities amid heightened geopolitical risks and a falling Indian currency.

In February, they sold Indian stocks worth ₹6,641 crore in the cash segment, marking their eighth consecutive month of net selling in Indian equities. On March 2, they sold Indian stocks worth ₹3,295.64 crore in the cash segment.

5. Increased geopolitical risks cast a shadow on earnings revival prospects

The war in West Asia has increased geopolitical and geoeconomic risks due to the disruption in energy supply.

Market participants fear that a prolonged war between the US and Iran will keep crude oil prices high for a longer period, thereby inflating inflationary pressures and weighing on global economic growth.

This will lead to low consumer demand and higher input costs, reducing companies' profitability.

Market fears that the growth-valuation mismatch, which has been keeping the Indian market's returns muted for more than a year, may widen going forward.

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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.